A company pays $15,000 per period to rent a small building that has 10,000 square feet of space. This cost is allocated to the company's three departments on the basis of the amount and value of the space occupied by each. Department One occupies 2,000 square feet of ground-floor space, Department Two occupies 3,000 square feet of ground-floor space, and Department Three occupies 5,000 square feet of second-floor space. If rents for comparable floor space in the neighborhood average $2.20 per square foot for ground-floor space and $1.10 per square foot for second-floor space and the rent is allocated based on the total value of the space, Department One should be charged rent expense for the period of:
A) $4,400.
B) $4,000.
C) $3,000.
D) $2,200.
E) $2,000.

Question

Quizplus · Accepted Answer

The total value of the space is calculated as follows:
Department One: 2,000 square ft x $2.20/sq ft = $4,400
Department Two: 3,000 square ft x $2.20/sq ft = $6,600
Department Three: 5,000 square ft x $1.10/sq ft = $5,500
Total = $16,500

The proportion of the rent expense allocated to Department One is: 
Department One's space value / Total space value x Total rent expense = 
$4,400 / $16,500 x $15,000 = $4,000.

Therefore, Department One should be charged rent expense of $4,000 for the period.

A Company Pays $15,000 Per Period to Rent a Small